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Used car sales rev up Pendragon shares

Car dealer Pendragon’s shares have surged more than 15pc after a strong showing in its used car arm.
The company - one of Britain’s biggest retailers of new and used cars with 184 outlets - said annual revenue rose 4.5pc to ?4.7bn but pre-tax profit was down 10.5pc at ?65.3m after its margins took a "temporary" hit in the third quarter of the year.
The performance for the year to the end of December comes after official UK registration data on new cars - a proxy for sales - dipped 5.7pc last year to 2.54m. The decline has been blamed on a combination of economic uncertainty and confusion about the Government’s policy on diesel cars, which is holding back motorists from replacing their vehicles.
In October Pendragon chief executive Trevor Finn warned about the state of the market, saying the company - which owns the Evans Halshaw and Stratstone dealerships - expected a pre-tax profit of ?60m against market expectations of ?75m.
Used car sales rev up Pendragon shares

Trevor Finn, boss of Pendragon
At the time Mr Finn, whose company sells marques including Aston Martin, BMW, Ford, Hyundai, Jaguar Land Rover, Mercedes-Benz and Vauxhall, said "as consumer confidence waned, we experienced significant market pressure”.
Speaking at annual results, he added: "We had a blow-out first quarter on sales, then duty changes kicked and the market was OK but the supply of cars kept coming. We had to pre-register cars and by the time we'd sold them the market was feeling it in the third quarter. Things got back to normal in the final quarter."
For the full year, Pendragon’s revenue from new car sales in the UK was down 7.5pc on a like-for-like basis at ?1.77bn, with gross profit falling 12.3pc to ?123.5m.
Mr Finn also called the end of market growth driven by personal contract plans (PCPs). These are leases usually over three years where at the end the motorist can hand back the keys and walk away, make a "balloon" payment and buy the car, or use equity built up in it to finance a deposit for a new PCP. Most people roll into a new PCP.
""In the sense that its stimulated the new car market the PCP boom is over," said Mr Finn, saying that just over 82pc of cars are bought using the leases. 
But investors were cheered by a strong performance in its used cars business, which is a focus for Pendragon. 
Sales of used cars jumped 15.8pc higher to ?2.1bn, though gross profits slipped 1pc to ?156.3m. 
Mr Finn pointed out the used car market in 2017 was 7.78m vehicles, some 3.1 times bigger than the new market. “Despite challenging economic conditions, the used market is more stable and provides a more reliable supply chain than the new vehicle sector,” the chief executive added, saying he expected the market to grow 1pc in 2018. 
The chief executive expects PCPs to help grow the used market, with them currently used to finance about 50pc of second-hand car sales, though this is up from about 30pc in 2014.
Revenue from Pendragon's servicing business climbed  6.5pc to ?350.6m with gross profit 1.1pc stronger at ?191.2m.
Pendragon shares
Older cars need more servicing, which is the most profitable area for Pendragon. 
“The demand for servicing and repair activity is less impacted than other sectors by adverse economic conditions, as motor vehicles require regular maintenance and repair for safety, economy and performance reasons,” Mr Finn said. “We expect at least for the next three years to see good continuing growth in the car parc [number of cars on the road], with higher growth expected in vehicles over four years of age.”
Publishing annual registrations data, industry trade body the Society of Motor Manufacturers and Traders pointed out that 2017’s sales were being compared against a record year. Despite the decline, the year was still one of the strongest ever for the UK car market. 
Meanwhile Pendragon hopes to raise around ?100m from selling its US business. The company said the division performed well during the year, with sales up 12.4pc to ?414m and gross profits up 9.9pc at ?54.2m.
The company raised its dividend by 0.1p to 1.55p.
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